tv The Profit CNBC December 28, 2013 10:00pm-11:01pm EST
things. now, you stay safe. happy new year, everybody! bye! >> tonight, on the profit, i go inside mr. green tea, a second-generation, family-run ice cream business that has hit a wall. >> we physically cannot fill our orders to the distributors. >> the fiery dynamic between the father and son is hurting any chance of growth. >> you are strangling the business. >> back up. you're crossing the line between father and boss. >> if i can't fix their relationship and business, this company will be swallowed by a competitor. my name is marcus lemonis, and i fix failing businesses. this business will never function well under the "green tea" name. i make tough decisions... >> it was a mistake. >> this is never gonna happen again. and back them up with my own cash. that's a real check, by the way.
it's not always pretty... >> do you want to come over here? >> no. >> but this is business. i do it to save jobs, and i do it to make money. this the profit. [upbeat music] ♪ this week, i'm going to keyport, new jersey, a town that was devastated by hurricane sandy in 2012. i'm going to meet the owners of mr. green tea, a gourmet ice cream company. for nearly 50 years, mr. green tea has been hand-crafting exotic ice cream flavors and supplying the asian restaurant trade in new york city. >> so delicious. >> way ahead of their time, mr. green tea was producing flavors like green tea, ginger, and red bean. this family business was founded by richard's dad, santo emanuele, in 1968, who ran
it with richard's older brother, james. richard's dad passed away, and then his brother died unexpectedly, leaving richard to run the business. richard wanted to keep his family legacy alive, so he took over the business and brought his son, michael, with him. >> michael, there's multiple problems. we gotta do what we gotta do. >> unlike many of the businesses i help, mr. green tea isn't facing a crisis. they generated over $2.5 million a year in revenue, and the emanueles make a very good living, but the business is static. >> i have such a hard time making this decision. >> the emanueles can't seem to agree on a plan for their future. michael has big ideas, but richard always plays it safe, and that creates tension. >> it's not 75. just get-- >> don't mince my words. i hate that. >> i believe that mr. green tea can be a $50-million company. they need to be bold, and they need to take chances. they haven't launched new
flavors in over a decade, and they're still not well-situated in the retail market. the ice cream business generates well over $10 billion a year. i want a taste of it. >> hello. >> hi. >> hi. >> i'm marcus. >> hi, marcus, nice to meet you. i'm lori. >> nice to meet you. are you lori--are you mom? >> i'm mom. >> i wore green because i wanted to-- >> you're gonna fit right in. >> i wore green. >> [laughs] >> i'd love to meet everybody. >> would you like to meet--sure, come on in. >> yeah, that'd be great. >> this is marcus. >> hey, guys. >> hi. >> how are you? i'm marcus. >> this is dick, dick's our operations manager. >> i'm dick, nice to meet you. >> this is my son, michael. >> nice to meet you, mike. >> nice to meet you. >> and my husband, rich. >> hi, marcus. very nice to meet you. >> how are you? it's nice to meet you. >> heard a lot about you. >> you too. so, rich, tell me a little bit about the history of mr. green tea. >> well, you know, my dad started this business, you know, 45, 50 years ago. >> he's the real mr. green tea. >> he saw the need of high-quality ice cream for the restaurants. he had a friend who was also in the ice cream business, and my dad believed you gotta sell to food service--to restaurants,
and his friend believed you gotta sell to grocery stores. my dad went his way, founded mr. green tea, and put it into restaurants, and reuben went his way and founded haagen-dazs. so, you know. you see who actually had the better idea. >> haagen-dazs as in-- as in the haagen-dazs, multi-billion-dollar ice cream? >> exactly. >> do you have his number? maybe i can go do some business with him. >> well-- [laughter] >> i like this story because it's a classic case of being willing to take risks. in the case of mr. green tea, they like to get up to the plate and hit singles, and in the case of haagen-dazs, they were swinging for the fences, and they took the biggest risk of all. they were willing to strike out. in this case, they hit a home run. if we can get mr. green tea to take the same sort of risk, then they can be as successful, maybe even more. what's the top line today? >> we're on track to break 2 million this year. >> okay. so it's a small business... >> it's small. >> but a decent margin business. >> comfortable, but--exactly. >> yeah. >> do you make the ice cream here on the premises?
>> no, we don't actually make anything here. we use co-packers, a few around the tri-state area, and we travel to the co-packers when we need to manufacture, make sure they're to our quality control. >> what does that cost to go there? >> a lot. >> i'll bet you they are anywhere between 20% and 30%, yeah. >> co-packers are third-party vendors who manufacture and produce product for small companies. mr. green tea gives up about 20% margin by using co-packers because they don't produce the product themselves. 20% margin on $2 1/2 million of revenue means they're giving up about $1/2 million a year in potential profit by not making the product themselves. >> we have grown 20% every single year for the last five or six years, and the only reason we're not growing more, especially this year, is we physically can't get enough ice cream. there's logistics in the manufacturing and getting the product here. >> and for that matter, since we can't fill certain orders, we're not actively going into new ones. >> right. >> one of the other disadvantages of using a
co-packer is that you don't control the manufacturing process. that co-packer could have 50 to 100 other customers, so you're allocated one time slot. if your business grows and you don't have more time slots available with this co-packer, it won't matter how many orders you get. there's no time slots. there's no way to make your product. that's a big problem. >> we want to build a facility and bring all the manufacturing under one roof. >> and what's held you back from doing it? >> well, i know--obviously, you get worried. you know, i'm very, very conservative, and maybe even too much. >> conservative to a fault. >> why is that a bad thing? >> we've been talking about putting up a new facility for a long time now, and it's just going slower than-- >> yeah, but-- >> in my opinion, it should-- >> but the thing is, it--it-- you need the business there. you know, i'm not gonna put a facility up unless i know we have that much growth-- >> it's the chick--it's the chicken or the egg. >> exactly--coming in. >> what keeps you up at night, thinking about this business? >> um, making a wrong decision, which would impact the company and the employees. >> and how about you, michael, what keeps you up at night?
>> i think we lose out on the potential here of the company by not moving fast enough. >> those are two very different philosophies, 'cause one is a little like, you know, "i'm not gonna get anywhere near the edge," and you are just wondering, "how close can i get to the edge without being deadly?" >> yeah. >> actually, michael is like, "can i actually jump over the edge and make it to the other side?" >> tell you, listen, it's a-- the food industry is one of the most brutal industries. >> michael, you're trying to defend yourself, but there's no defense. >> you can't have a--let me f-- let me finish. six or seven years ago... >> seven years ago, yeah. >> when your wildest dreams, you couldn't possibly outgrow this facility, we're there. in my opinion, mr. green tea is not nearly as lucrative or profitable as it should be. i'm afraid that if we don't hurry up along our path, that a bigger company, one of the major guys, will come along and squash us. >> this is the test kitchen area. >> what we do in here is test our supply of milk, sugar, cream, and ingredients, and make
sure that the suppliers are giving us the same one every week. we have three skus. we have the green tea, the red bean, and the ginger. we'll start with this, the green tea. this is our top seller. yeah, hence the name, "mr. green tea." >> look at the color. >> it's been the top seller for what, 45 years? >> yeah. >> that green tea's good. >> isn't it good? >> mr. green tea currently makes three pint flavors, and after being in business for this many years, well, that's not good enough. i want to see them expand their product offering, expand their flavors, and appeal to a much broader audience. what does it cost to launch, to develop a new flavor? >> a lot. >> between the milk and everything, we'll go to a facility, have it run, and test it. that gets expensive. i'm gonna say $10,000. >> launching a new product line is a costly investment, and it's risky, especially when you're dealing with co-packers, 'cause they're gonna charge you a fortune to make a small batch. >> if we wanted to get into, let's say, a hundred stores this year, in 2013, it'd probably cost us about $40,000 to
$50,000. >> see, i think more than that, because-- >> do the two of you communicate about these numbers very often? >> michael does not do the numbers on an everyday basis like i do. >> if you don't know your numbers, you just don't know your business. i mean, it's just that simple. >> i know my numbers. >> you know your numbers? >> i know my numbers. >> okay. >> absolutely. >> if an investment's gonna be made, numbers are everything. look, richard is all about the numbers, and he leaves very little margin for error, and michael has big ideas, but he doesn't pay enough attention to the numbers, and that could lead to big problems. i noticed on the website that you also have some mochi. >> yeah. >> this is a mochi. yeah, they come individually wrapped. it's a little bit of ice cream with a sweet rice dough on the outside. >> i tell people it's like a ravioli. >> so this dough is-- you were saying-- >> is sweet rice flour. >> sweet rice. >> like a ravioli of ice cream. >> this one i believe is black sesame. >> it is black sesame. >> yup. >> whoa. i've never seen it individually wrapped in this package. wow. >> isn't it good? >> it'd be interesting to figure out a way to retail this. >> i agree.
>> mr. green tea's products are great, but i need to know more about their process and their day-to-day operations. walk me through the logistics here. what is this space here, and you know, what happens here? >> okay, here we have the freezers where we keep a lot of the stock. >> how does the product get from the co-packer to here? >> we pick it up. there's three trucks. you know, it's a constant movement of product. >> it's gotta cost a lot to do that. >> it's very intricate, because if you miss one day, it's a chain reaction that screws everything up. >> so this is where all the inventory's kept? >> right here. >> so what is there, one or two weeks' supply in here? >> uh, probably about a week right now. >> i'll give you a lot of credit, it looks organized, it looks right. yet another problem with co-packers. we're burning a lot of money transporting product from the co-packer to our storage facility. we need to build a factory right away. how much money does this business need to go to the next level? >> i think whatever it takes to build a facility. >> have you looked at any? >> yeah. >> what's the output?
how many--what's the production capacity? >> quadruple what we could get-- what we could bring in now. >> for every one you make today, in a new facility, you could make four? >> correct. >> where's the facility at? >> the building we're looking at is in keyport. >> can you take me to see it? >> i could. >> all right, so this is it. it's been vacant for 25 years, and there's so much crap in it, it's unbelievable, you know-- >> don't be too enthusiastic. >> yeah, well, you know, the roof's been leaking, the stuff fell, it was flooded, it's-- who knows what you're gonna find in there, but-- >> and then more after the storm. >> i personally think it's beautiful. i love the building, i love that we're right here. >> i know michael doesn't want to hear this, and he gets crazy when i talk about it. i think what scares me a lot about it is the uncertainty of what it's going to cost. because i know that--all right, the building, that's money you gotta lay out immediately. if it's a $300,000 price tag to buy it, that's way too much. you know, you get so far in, and then the problems that you're gonna have with what's uncovered, you know, um-- >> i would go right now, just
get going. >> whoa. >> isn't it beautiful? >> you know, look, michael, the more i look at this place, the more scared i get. >> stop looking at it. >> this building is a total disaster after hurricane sandy. we're gonna need to redo everything--the plumbing, the electrical, the ceiling, the floors, the windows, the walls. it's a total mess. we're gonna make it right, though. >> do you want to come over here? >> uh, no. >> i'll piggyback you. >> that's okay. >> what a mess. it seems like there's a theme that goes on where you want to get stuff done now, and you want to talk about it. >> cautiously. >> right, right, exactly. >> the building costs "x," the build out costs "y," those two add up to a number. what do you think it takes to get it all the way to open? how much money? >> $600,000 mark. >> remember, i'm relying on your numbers for the return, so... >> it's accurate. >> it's low. >> yeah, i mean, the, uh, manufacturing equipment is gonna
cost about $225,000. the freezer, i'm expecting about 80,000. >> and how much margin do you think you're gonna pick up by making your own stuff? >> at least 25%. >> 20% just to be on the safe side. >> so it takes a little less than two years to get all your money back? >> to get everything back. exactly right. >> at the end of the day, if it takes, from your mouth to my ears, $600,000 to get it right, and the return on the investment happens in less than two years, then i think what we need to do is get to work on getting it. businesses are usually about three things for me--people, process, and product. i think the product's excellent. i think the people are fantastic, and i think the process is broken because we're giving up margin to a third party when we can do it ourselves. the basic premise behind this investment for me is, can i double or triple my money? can i trust the people that i'm doing business with?
you're now at a point where you're not gonna go anywhere unless you do something different, and i think the business needs capital without pressure. what this business really needs is an investor who's willing to take chances and is willing to put money at risk for the upside. so my offer is $600,000 for 35% of the business. >> hmm. i, uh--i-i had other ideas. i wanted to talk about royalties and stuff like that instead of, you know, just a clear percentage. i don't know if i'm willing to give up any ownership of the business. >> the reason that i don't want to be a lender is because i want to be on the elevator. if i didn't think there was something good, i would be a lender at a high rate. >> right. >> but i think there's something here. i want to invest my money in mr. green tea for two simple reasons--i know it's safe,
because they have the financial controls in place, and they manage their money probably better than i've seen any business so far, and i know my return on capital is gonna exceed my expectations. i think my offer is very fair. i think my offer is well thought-out. i mean, without me, you're gonna stay a $2-million company until he's 60. >> this is something i would really have to think about. >> that's a real check, by the way. >> i--i see that. >> [laughs] >> i--[sighs]--i-i have to think about it a little bit. >> well, let me step out, so you guys can talk not in front of me, okay? >> okay. okay. >> are we willing to take this right now? >> i didn't expect marcus to make an offer so soon. >> there's no doubt taking this deal will excel the company. >> it's a very high percentage.
>> learning doesn't come free. >> listen, with the life that you don't know what's around the corner, i say go for it. >> i don't think you--either of you can convince me. >> you're not gonna lose. >> no, i can't, lori. i don't think so. >> i think my father's at the point where he's comfortable. he's not hungry anymore, and there's a lot of people here that are. i think we can bring it to the next level. i know we can bring it to the next level. the fact of the matter is, the company is not nearly at the potential it can be at. we need a facility. we need more flavors and more marketing money. >> unfortunately for you, this is my company, so you know what, to think that-- >> it's unfortunately for everybody here. >> well, this is not home. this is the office. >> you are strangling the progression of the business. >> back up. you're crossing the line between father and boss. do not come in here again and speak to me that way. they know the product. >> i don't agree with that.
>> you know, i think it's worth more than that, but it's not about that. >> well, as we said, we looked at the upside. >> it's not about it. >> the up--the downside of not taking the deal, and like i said, that's-- >> you know, marcus, i didn't-- i didn't expect, um-- >> actually, we didn't expect this to happen today... >> so quickly. >> 'cause we thought there was gonna be days, days, days. >> why don't we go through a number of questions that you may have? >> okay. >> so my dad takes this check... >> mm-hmm. >> and you receive 35% of the company. >> mm-hmm. >> you know, the day-to-day operations of the business are gonna stay right here... >> i don't care. >> in this office. you don't want any part of that? >> i don't want any part of it. if you need my advice or you need some input, you'll call me. >> and this is--this is not a "sleep on it" deal? i can't think about this at all? this is a-- >> you can, but the deal will get worse.
you will never change this business model, ever, without me. >> [sighs] um... obviously, it's very lucrative. it's lucrative on both ends. >> it's a no-brainer as far as i'm concerned. >> so do we have a deal? >> we have a deal. i feel--i feel better. >> okay, so there's a catch. >> okay. >> sit down. the catch is, when you take my money, for the next week, i'm in charge. do you understand that? >> okay. >> and it's gonna be a very long week. we're here tomorrow early. rise and shine to work. i would like if you dressed like
i'm gonna dress tomorrow, which is in a tie and a shirt. >> yes, i will. >> be a little more professional. >> okay. >> you dress however you want since you own the joint. >> okay. >> and we're gonna go to work. >> night. >> [sighs] we live and die by our decisions here, and they're never easy. they're never, never easy. >> when i go in to look at business, i look at people, process, and product. i love the product. it's spectacular, but i am worried that there's not enough variations of product. i feel like we're pigeonholed into one thing. i think the most exciting thing is gonna be developing some new flavors. currently, mr. green tea has a limited numbers of flavors, and they're focusing solely on the asian restaurant market. i want to expand new flavors and new locations, including retail stores, so that we can become a household brand like haagen-dazs. when it comes to the process, today, our relationship is with co-packers, and those co-packers
have us at their mercy. they control the supply. they control the pricing, so i want to explore alternatives to being reliant on co-packers. we're gonna open our own manufacturing plant, which will put us in charge of production. we will also be able to cheaply create and test new products and new flavors. all these changes will give us the ability to go from $2 1/2 million to $5 million within 12 months. i'm expecting to go to $30 million in the next four to five years. the last one is people. i think you guys have a wonderful family, but the dynamic between father and son is always a tough challenge in business. there are some issues. rich has to learn how to take some chances. i like cash in the bank like you do, and i don't like debt, but i also like growth. you know what concerns me about michael is that he doesn't know his numbers the way he should. all right, let's go to work. i'd like to go maybe make some ice cream, do that. >> let's do it.
>> so educate me on something. once the ingredients are established... >> yes. >> they can be modified into frozen yogurt? they can be modified into soft serve? >> correct. >> it's all the base. >> it's important for mr. green tea to expand their flavors and products, because once people fall in love with the brand, we want to make sure that we have a flavor for everybody. there's two ways you can grow this business. you can grow it vertically, up and down, by developing new flavors, or you can grow it horizontally, by creating new brands and new ideas. i want to make sure that we hit all parts of the market from a 5-year-old to a 50-year-old. what i don't like about the business today is, i don't like that the whole business foundation is based on one name. >> i always thought that we could do another brand, another spin-off. i thought maybe we could do a gelato company 'cause we are italian, and we, you know, deal primarily in asian flavors. it'd be nice to take our heritage into making some of the products that we make money on, so i came up with the idea of solo gelato, 'cause the word "solo" means the same thing in
italian as it does in english. >> i love it. >> it's a singular flavor. solo. one. so the tagline could be something like, "sometimes all you need is one bold flavor." >> i love the idea. >> it is a good idea. >> but? >> there's always a but, but-- >> but launching a whole new brand-- >> i never really thought about launching a whole new line. >> it would be--it's gonna be-- >> it's gonna be expensive. >> i think michael's idea to create a gelato line was brilliant because he understands that taking a facility that we're already gonna be operating making ice cream and creating another product inside that same facility, getting the efficiency out of it, i mean, honestly, i'm very impressed with him. so you need to start to think about an umbrella brand and really creating something that these different flavors can sit inside of. creating a gelato line called "solo" should not sit under a name brand "green tea." i have to tell you, and i have to be very honest about it, is that in order for this business to grow, it will never function well under the green tea name. >> they know the name. they love it. >> nobody's going to buy blood
orange gelato... >> mr. green tea ice cream. >> from mr. green tea. the actual green tea flavored ice cream, which is what the bulk of the business is, i would never advocate changing the name of that, ever. this package will never change. mr. green tea would be the flavor. >> then what would you call the brand? >> you know, if i just was kind of brainstorming and coming off the top of my head, you know, why wouldn't you call it keyport creamery? the keyport creamery is an emanuele family company, right? very nice underneath, and we offer since 19... >> both: '68. >> '68, the most fantastic line of green tea ice cream, ginger ice cream, red bean, but we've now started to expand into... >> both: solo gelato... >> and... >> mochi. >> mochi, and whatever else you decide to launch. >> you're right. >> yeah, i-i like the ideas, yeah. >> i've arranged for michael and richard to have a call with the bank, so they can negotiate for
the building we saw the other day. >> so what do we want to do the initial offer at? >> i think we have to offer at 200,000. >> 200,000? >> right. >> and we'll sign the check today? >> yes. >> is that what we're telling them, yes? >> yeah, it will be a done deal. [dial tone] [dialing] [line ringing] >> hello, this is niko. >> hi, niko, it's mike again from mr. green tea. how you doing? >> good, guys. how are you? >> good, good. i have the three investors here with us, and we want to make a deal happen quickly. >> so i had mentioned to you guys the--the 275,000. i mean, i know there's some back taxes and stuff that are due. can you give me an idea of what you were thinking? >> we were thinking about offering today, trying to get it wrapped up quickly, at 200,000. >> no way. i could-- >> [sighs] >> i could potentially do 250,000. >> 1/4 million is out of the question. that's crazy. >> i don't think you understand the amount of work that this place has to go through before it's even habitable. >> i don't hear you telling him the reasons why, in cash, and
the reasons why. quick close. sell him. michael's struggling during the negotiation, but what i do like is that he convinces himself that he has the knowledge and the energy, but he just doesn't have the experience. >> listen, we're doing no financing. cash deal. quick. get it done with. >> listen, i appreciate what you're telling me. i'm just telling you, i can't agree to that. i can agree to 240,000. i cannot agree on anything less. >> we'll do 230,000, and we'll wrap it up today. >> i can't. i can't. >> okay, we'll take the 240,000 deal if you pay the taxes. >> no, i just told you, i can't. >> all right. >> both: 15,000. >> yeah. >> so you're paying 255,000. >> we're paying 255,000 on it, yeah. let's split the taxes at 240,000, then. >> i cannot. >> you will not go a penny below 240,000? >> i can't. >> what do you think? >> i could have spent that 18,000 five other ways. >> michael, the word that comes to my mind is "reckless."
every weekend worked, every idea sold... ♪ ...you deserve a cadillac, the fastest growing full-line luxury brand in the united states. including the all new 2014 cadillac cts, motor trend's 2014 car of the year. get the best offers of the season on our award winning products. like a 2014 ats and srx. hurry in,
offers end january 2nd. >> let's split the taxes at 240,000, then. >> i cannot. >> you will not go a penny below 240,000? >> i can't. i can look at what i would sell it for and take out expenses that i had factored in, and i get the net number. >> hi, niko, this is marcus. i'm a new investor in mr. green tea. >> hey, marcus. >> are you greek? >> yes. >> so am i, lemonis. so... >> oh. >> it's two greek-- >> so, see, you know how the greeks are, then.
>> that's right. i do know how the greeks are. listen, one of the things that i think may be a better angle is for us just to buy the bank's position. so if we just signed a deal to buy the bank's position at $240,000, the economics are the same for you, but they put us in a little better spot, and i want the leverage to have the ability to get something back. when the original borrower took out a loan against the warehouse, he pledged additional pieces of property other than the warehouse as part of the loan. the loan is now in default, and the bank is foreclosing, so when i buy the bank note, i'm not only gonna get the warehouse as collateral, but i'm going to get other pieces of property as collateral as well. my plan is to liquidate those other pieces of property, which will lower my investment from $240,000 to $140,000. >> you are 100% correct. >> do you understand? >> you should. you should! >> to me, the net result is the same. >> yeah. >> to me a note sale is actually an easier deal, and i have no problem with that. if you could do 240,000 for the
note, i can tell you that that number works. >> under these terms, are you comfortable moving forward? >> yeah. >> okay, so we have a deal then? >> yeah, 240,000 will be the purchase price. >> let me ask you a question. this is more of a trivia question. what would you guess that we do as a company? >> mr. green tea? >> yes. >> uh, make tea leaves? >> okay. >> [laughs] >> thanks, buddy. i appreciate it. efharisto. >> what--what do you do? >> we make ice cream. >> oh, really? >> yeah, that's what i said. [laughter] >> you might want to think about your rebranding. [laughter] >> oh, good. good point. thank you. i may--i would have paid you 245,000 for that. [laughter] holy moly. look at you. >> [chuckles] what's up? >> looking sharp. >> thank you. >> while the warehouse papers are being drawn up, i've asked
the graphic designers to put together some new looks and logos for not only the company, but the solo gelato line. so this would be a sort of, kind of a print campaign for whatever flavor we wanted it to be. >> i love that. that's awesome. >> this is crack one at solo. there's another look here. >> love that one. >> i like that one as well. very european. >> i agree. >> i like 'em. i-i really do. this one, i mean, you know, listen, women sell products very easily. this makes you turn. >> well, sex sells, so i mean... >> yeah, but it's just, you know. >> i was surprised how much rich liked it, and it was interesting to stand back and watch lori and michael and rich kind of debate on styles and colors. i want them to pick something that they love. is this whole thing a little surreal for you? because some of these things you've been wanting to do for a long time. >> it would have taken michael and i, like-- >> weeks. >> and could we even do it? >> so based on rich's pace, we could probably have this done by 2035. [laughter]
>> two thousand--at least. >> i would get it faster. >> i said, rich, "you're gonna have to learn to move a little faster." >> all right, guys, thank you. >> thank you so much. >> michael called and told us to meet him outside the office. he has a surprise for us. [horn honks] >> what do you think? >> what is it? >> it's a fiat 500. >> well, i know it's a car. i know what kind of car it is. what's your thought here? what is this? >> it's a mobile promotional vehicle. it's a way to test the retail theory and see how many people actually want to buy mochi ice cream and mr. green tea products in new york. really low operating cost. we can get about between 650 and 700 mochi in this freezer. out the door car, graphics, and the freezer was 18,500. >> $18,000? how many mochi do we have to sell to pay for this?
>> uh, i do have numbers. i do have numbers. >> okay. >> they're in my head. >> [laughs] that doesn't-- i was really caught off guard when michael went out and made this extravagant purchase without anybody's permission. it's a bold move, but it's impossible to determine if it's a good return unless you run the numbers. >> you know, you just can't keep all these numbers in your head and think that everyone could read what you're thinking. >> why can't you trust that i know what i'm doing? >> because i could have spent that 18,000 five other ways. >> michael, the word that comes to my mind is "reckless." >> i have a construction crew getting ready to clean up this building, like, tomorrow morning. >> i think i-i need more time.
across the country has brought me to the lovely city of boston. cheers. and seeing as it's such a historic city, i'm sure they'll appreciate that geico's been saving people money for over 75 years. oh... dear, i've dropped my tea into the boston harbor. huhh... i guess this party's over. geico. fifteen minutes could save you fifteen percent or more on car insurance. just by talking to a helmet.
it grabbed the patient's record before we even picked him up. it found out the doctor we needed was at st. anne's. wiggle your toes. [ driver ] and it got his okay on treatment from miles away. it even pulled strings with the stoplights. my ambulance talks with smoke alarms and pilots and stadiums. but, of course, it's a good listener too. [ female announcer ] today cisco is connecting the internet of everything. so everything works like never before.
>> you know what, it's-- >> that wasn't a reckless purchase. >> what's it's gonna cost to insure? >> gas, repairs, maintenance, all these things. >> tolls, everything. it's--yeah, but-- >> i factored that all in. >> but you have to show that. you have to show that to me. you have to show that to marcus. you have to show that to all of us. >> look, it's a bold move, and i like the concept, but how are we gonna know if it makes sense if you don't run the numbers? he's got better ideas than all of us, but what's inside your head has to come out on paper. >> the lesson to be learned is it has to be on paper. >> it boils down to communication. we're gonna communicate from now on. >> it's been 48 hours since we toured the building and made the deal. i am excited how quickly things are coming together. all right, this is a loan sale agreement. the building is officially ours as soon as rich signs. >> it's, like, so fast. [laughs] >> the one thing i know about business is you have to move quickly, or you're gonna miss out on a good deal. >> [sighs] >> you're making me nervous. i know those sighs.
>> you're all good with this? >> it's what we wanted. >> do you see a problem with it? >> [sighs] no, i don't see a problem with it. i-i guess i thought i was gonna have more time thinking about it. >> it's what we want. >> maybe i need more time. what's that look for? >> i--'cause i--it's-- >> i think i-i need more time. >> i have a construction crew getting ready to clean up this building, like, tomorrow morning, and i asked you if all these things, and you kept saying to me, "well, those are all ifs. i need to see it on paper." well, here it is. i mean, listen, if you want to keep this company a $2-million company, then just keep things the way they are. >> [sighs] >> we're always gonna get to the point where he's gonna say yes and then at the last minute he's gonna say no. >> it's just--it's just overwhelming to me. i just--i hope you guys don't get too disappointed. i-i just can't sign this right now. i-i just can't. >> even though i've given rich everything he needs, he's still
reluctant to take risks. let's go take a walk. rich needs to take a moment and clear his mind. hopefully, he'll get past it and make this deal happen. >> i don't understand. >> it's too fast. >> that makes no sense! >> i don't know what happened back there, but you obviously got something on your mind. >> i got too overwhelmed, you know? all of a sudden, the reality set in. i guess everything happened. it came true so fast. it just became a little overwhelming. >> what i don't want to do is, i don't want to sell you on this concept. you have to really want to do it. when i decided to move forward on this project, i did it for one simple reason--the economics gave us one heck of a return, so if we end up having $600,000 to $800,000 in this building, it's very simple math. >> right. >> you told me that you thought the margins that were evaporating from our business were anywhere from 20% to 30%. our current business is $2 million, so on $2 million of
business, it's anywhere from $400,000 to $600,000 a year... >> right. >> evaporating. >> right. >> i want to try to bring that back, but what's even more important is, that factory gives us the ability to satisfy the demand that you say is out there, so it's just--it's--rich, i mean, i'm not gonna--as i said to you earlier, i'm not gonna sell you on it. >> right. >> you're a smart guy. you do the math. so whether i'm a part of this business or not, the ice cream will still get made, but it won't be as profitable... >> right. >> it won't be as big, and it won't be ready for michael to take it over if you don't take this step. your numbers weren't right. >> it was a mistake. >> this is never gonna happen again.
>> whether i'm a part of this business or not, the ice cream will still get made, but it won't be as profitable... >> right. >> it won't be as big, and it won't be ready for michael to take it over if you don't take this step. >> i'm--i'm ready. i-i feel better. you know, just getting out and clearing my head a little bit and just talking to you one-on-one. i'm--i'm ready. >> your dad and your brother would be very proud of you. >> they would be. they would be. i know they would be. >> cleanup is finally under way at the warehouse, but a big problem has come up, and i need to meet with michael immediately. michael, there's something that
i want to talk to you about, okay? >> okay. >> from the beginning, we've been talking about 600,000... is the building and the build out and the equipment and everything. the building costs "x." the build out costs "y." what do you think it takes to get it all the way to open? how much money? >> $600,000 mark. >> remember, i'm relying on your numbers for the returns, so... >> it's accurate. >> it's low. >> i made this investment largely because i believe in you. i didn't factor in all of the details because i'm not an engineer or an architect, and i knew you were working on the drawings, then i get an email that says the building isn't gonna cost 600,000. it's gonna cost 1.3 million. i have 240,000 in the building. i have 50,000 in the cleanup of the building. that's already 300,000, and we haven't bought the equipment yet. the equipment's gonna be $200,000, and to build out the space is gonna take nearly a $1/2 million. i don't like surprises. i'm committed to you... >> mm-hmm. >> i'm committed to mr. green tea, and i'm committed to your
family, but i am not committed to having numbers double on me. do you understand that? >> i do. >> i can't move forward... >> mm-hmm. >> if i don't know for sure what the numbers are gonna be. when the number came back at 1.3 million, you know, more than double wha--what the original estimate was... >> mm-hmm. >> i'm not gonna lie to you-- >> a little sticker shock. >> it--well, it kind of pissed me off, because we--we've been talking about the fact that you have to know your numbers. >> mm-hmm. do we know our numbers? no. we weren't 100% accurate on them. >> i mean, really, the question for me was, when i got that email is, "am i doing a bad deal?" >> it was a mistake. >> but it's a mistake with my money. >> i know that. i didn't know my numbers. it was a huge mistake, clearly. >> there's this old adage in business, right? it's "underpromise and overdeliver," and in this case, we overpromised and underdelivered. i'm frustrated, and i'm angry. i'm still gonna move forward with this deal, 'cause i know that my money is safe with this company, and i know we're gonna be wildly profitable.
i guess the disappointing factor is, it's gonna take me a little longer to make a return on my investment. look, this is business. >> [clears throat] >> your numbers weren't right. i need to know for sure that this is never gonna happen again. >> it is never gonna happen again. >> okay? >> yes. >> all right. >> so i'm real excited for you to see the inside. we got a lot done. i know you were worried about the $40,000 to clean the place up. >> for the cleanup. $40,000 to clean up garbage? >> did you see it? >> [bleep], i'd have come done it myself. >> there was a lot to clean up, and believe me, you wouldn't have. >> michael, you did a great job getting this place cleaned up. >> thank you. >> i mean, you move as fast as i do. >> it happened quick. >> it's a great shell. >> it's a beautiful building. it really is. it just needs a little polishing. >> i'm kind of blown away at what i see at the warehouse. we've spent almost $50,000, and we haven't even built it out yet, but the warehouse looks amazing. >> so back here, the whole length of the building is the
freezer. the freezer will go this way, trucks will come in here, and we'll have a really easy workflow from our deliveries directly to the production room. >> i'm starting to really see the vision that michael's laying out. we're making a lot of progress, and we're making it fast. we're gonna have a first-class facility. probably the best on the east coast. >> everything from the freezer to the equipment that's coming from italy is the best in the world. >> and this is what we have to show your dad... >> mm-hmm. >> is the investment. >> mm-hmm. >> we know that we're gonna have a 20% margin improvement on that 2 million. >> mm-hmm. >> that's a $400,000 annual improvement in margin. >> correct. >> so in about two years, we're going to have our money back. and it's funny because your dad, if he would have just sat down and done those numbers... >> mm-hmm. >> he would have done it a long time ago. one of the beauties of this particular transaction is we're gonna make an investment in an american town that was hit hard by the hurricane and, i think, can get back on its feet very fast, but we have a lot of work to do. keyport, new jersey, has a new anchor. >> mm-hmm. >> for business advice and extra scenes from the show, go on to cnbc.com/the-profit.
you need a bunch of those to clean this mess. then i'll use a bunch of them. then how is that a bargain? [ sighs ] no, that's too many -- it's not gonna fit! whoa! cascade kitchen and math counselor. here's a solution. one pac of cascade complete cleans tough food better than six pacs of the bargain brand combined. so you can tackle tough messes the first time. that is more like it. how are you with taxes? [ laughs ]
[ laughs ] (voseeker of the sublime.ro. you can separate runway ridiculousness... from fashion that flies off the shelves. and you...rent from national. because only national lets you choose any car in the aisle... and go. you can even take a full-size or above, and still pay the mid-size price. (natalie) ooooh, i like your style. (vo) so do we, business pro. so do we. go national. go like a pro. >> okay, guys. i put these numbers together for next year. i think our growth next year is gonna be tremendous. i am projecting probably about 35% to 50% growth next year.
>> so you think we can do almost $4 million next year? >> i-i believe we can. the company, in this next year, looks like it's gonna grow by leaps and bounds. >> i know richard's numbers are conservative, and this is an exciting time for mr. green tea. the factory is scheduled to open in the next 90 days, and the co-packer will be gone, which will give us the ability to double our profit from 450,000 to 900,000. in addition to that, rich has $1 million of orders sitting on his desk, and i expect those orders to get processed very quickly. >> i learned about calculated risk. to make decisions in this company and any company, you have to really weigh the pros and the cons. and everything you do, every decision you make in a business has to have that risk-reward. >> you guys have pulled off, in my opinion, what is one of the hardest things to do in american business, which is to have a family business, because so often the failure rate is off the charts. you should be very proud of yourselves.
>> we're good. we're strong. >> you said you had some new-- something new to try? >> something new i whipped up for you. >> thank you. don't tell me what it is. >> okay. >> i'm gonna try to guess the flavor. >> oh? >> i taste a lot of chunks of ginger. >> this is a very little... >> you don't like ginger? >> candied ginger puree... >> no, i like ginger. >> with a ginger dice. >> i can launch this chocolate, tahitian vanilla, and black sesame honestly, no bull[bleep], before the end of the year. >> cheers. >> good ice cream, cheers. >> keyport creamery is well on its way to becoming a household name. michael has been working really hard to push the mochi and the new solo product line. >> $1. >> the response has been fantastic. we're looking into retail space in new york city. you're a block away from times square, and the traffic up and down here is tremendous. mr. green tea continues to grow its restaurant clientele. >> i have our new coconut gelato. >> both: mmm.
>> the equipment is on its way over from italy, and once it's installed, we'll have one of the most state-of-the-art ice cream manufacturers on the entire east coast. the building will be able to produce 1,600 gallons of ice cream a day. it'll have over 18,000 square feet of cubic freezer space to store all the product. the mayor of keyport has given us the city's stamp of approval to build out the warehouse. >> all right! >> yeah. >> whoo-hoo! >> it's got an opportunity for jobs as well as sprucing up the area. >> opening the factory in keyport is gonna help the city by creating new jobs. more importantly, the relationship between father and son is the best it's ever been, and they have a newfound respect for each other. there is no doubt in my mind at all that mr. green tea will be a national brand and make richard's father prouder than he could ever imagine.
>> tonight on the profit... i'm going inside la dogworks, and upscale dog boarding facility that is on the brink of going out of business. >> take a guess on how much you made. >> i have no idea. >> $78. [woof woof] while i like the product and i like the process, the biggest problem here is how its abusive owner andrew rosenthal handles his employees. >> email me the [bleep] schedule! just do it! >> i'm gonna try to improve the owner and employee relationship before it's too late. >> i don't have to ask him time and time and time and time again! he doesn't care! >> my name is marcus lemonis, and i fix failing businesses. i make tough decisions... i will not do it if you're managing the people.